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Our view  ‐  Stronger‐than‐expected execution on growth and asset quality to induce re‐rating

Disbursements at Rs3.05bn were higher than our estimate of Rs2.5bn, and thus AUM growth exceeded expectations at 3.7% qoq and 18.5% yoy. On core NII (excl. DA income) front, there was a 10%+ beat due to portfolio spread expansion (10 bps qoq). Cost of Borrowing fell by 20bps qoq to 7.2% and HomeFirst continues to carry high Balance Sheet liquidity of Rs14.8bn (nearly 50% of borrowings). Opex was well‐ controlled during the quarter, as it was lower 7% qoq. However, it should also be looked in the context of negligible branch addition in recent quarters.  

90+ dpd portfolio increased 10 bps qoq and 30 bps qoq including write‐off of Rs130mn. Restructuring stood at 60 bps of AUM and these loans reside in the current bucket (0 dpd). 1+ dpd portfolio increased to 8.9% from 6.2% as of March and swelling of PAR 30‐90 bucket was restrained. Collection efficiency having improved to 97.6% in June (dipped in April‐May to 94‐95%) and bounce rate having declined to 16% in July (from 18% in Q1 FY22) indicate that forward movement in stress buckets should ebb. Credit cost was higher in the quarter due to a) adverse bucket movement, b) Stage‐2 level provisioning made on restructured portfolio and c) some write‐off related provisions. Overall ECL coverage on loan assets was maintained at 1.4%.

Resilient execution on growth and asset quality in a testing period should inspire investors’ confidence on HomeFirst’s operations, underwriting and collections. Consistency of such performance will re‐rate the stock. There is longevity to HomeFirst’s growth run from a sharp focus, strong processes, large addressable opportunity and low competition. Valuation of 3.2x FY23 P/ABV does not fully capture structural growth and profitability prospects. We hold a high‐conviction BUY and have raised 12m price target to Rs750 on assigning a slightly higher multiple now (influenced by the resilient show).   

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